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Endogenous discounting, the world saving glut and the U.S. current account

  • Choi, Horag
  • Mark, Nelson C.
  • Sul, Donggyu

We study the evolution of the U.S. current account in a two-country dynamic stochastic endowment model in which a single non-state contingent bond is the only internationally traded asset. The paper focuses on the world 'saving glut' as the primary cause of continual deterioration in the current account and departs from the standard framework by introducing a three-parameter model of the subjective discount factor that depends on societal (per capita) variables that are external to household choices. When agents in the model are presented with U.S. and rest-of-world endowment data as the realization of the exogenous state vector, endogenously driven short-run international differences in subjective discounting that display increasing relative U.S. impatience create saving and current account imbalances that matches patterns observed in the data.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 75 (2008)
Issue (Month): 1 (May)
Pages: 30-53

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Handle: RePEc:eee:inecon:v:75:y:2008:i:1:p:30-53
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